No. 789: The Distribution of Talent across Contests
Ghazala Azmat Queen Mary University of London and Centre for Economic Performance, LSE Marc Möller University of Bern
March 30, 2016
Abstract
Do the contests with the largest prizes attract the most-able contestants? To what extent do contestants avoid competition? In this paper, we show, theoretically and empirically, that the distribution of abilities plays a crucial role in determining contest choice. Complete sorting exists only when the proportion of high-ability contestants is sufficiently small. As this proportion increases, high-ability contestants shy away from competition and sorting decreases, such that, reverse sorting becomes a possibility. We test our theoretical predictions with a large panel data set containing contest choice over twenty years. We use exogenous variation in the participation of highly-able competitors to provide empirical evidence for the relationship among prizes, competition, and sorting.
J.E.L classification codes: L20, M52, D02
Keywords: Contests, Competition, Sorting, Incentives